Articles Tagged with Books and Records Rule

Beginning October 1, 2017, registered investment advisers are required to use revised form ADV, which requests certain information not sought on previous versions of the form. Advisers will also have to comply with amendments to Rule 204-2 under the Investment Advisers Act of 1940 (“Advisers Act”).  With the compliance date less than three months away, advisers should examine whether to modify their internal policies and procedures pertaining to Form ADV reporting and recordkeeping, and also should begin the process of collecting the new information and assuring that the information remains available for future Form ADV filings.

The amendments to Form ADV changed the requirements of Item 5 of Part 1A of Form ADV and Section 5 of Schedule D.  The amendments will obligate investment advisers to disclose the estimated percentage of regulatory assets under management (“RAUM”) held in separately managed accounts (“SMAs”) and to indicate those assets “that are invested in twelve broad asset categories.”  Investment advisers with $10 billion or more in RAUM connected to SMAs will be obligated to report both mid-year and end-of-year percentages for each category.  Investment advisers with fewer than $10 billion in RAUM connected to SMAs will only be obligated to report only end-of-year percentages.  The amendments to Form ADV will also require investment advisers to disclose the identity of custodians that make up 10 percent or more of an investment adviser’s total SMA RAUM. Continue reading

On February 7, 2017, the Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released a list of five compliance topics that are the most commonly identified topics “in deficiency letters that were sent to SEC-registered investment advisers.”  OCIE published this list in a National Exam Program Risk Alert in order to help advisers who are conducting their annual compliance reviews.

The first compliance topic was compliance with the Compliance Rule, Rule 206(4)-7, which requires an investment adviser to create and execute written policies and procedures that are reasonably tailored to prevent the investment adviser and its supervised persons from violating the Advisers Act and to detect potential violations.  The rule also requires an investment adviser to review the sufficiency of its policies and procedures at least annually and to appoint a chief compliance officer.  According to OCIE, common violations of the Compliance Rule include not having a compliance manual that is reasonably suited to the adviser’s method of doing business, failure to conduct annual reviews or annual reviews that did not cover the sufficiency of the investment adviser’s policies and procedures, failure to follow policies and procedures, and compliance manuals that are outdated.

The second topic that OCIE identified was compliance with the Advisers’ Acts rules on regulatory filings.  For example, Rule 204-1 provides that investment advisers must make amendments to their Form ADV on at least an annual basis, and the amendments must be made “within 90 days of the end of their fiscal year and more frequently, if required by the instructions to Form ADV.”  For investment advisers to private funds, Rule 204(b)-1 provides that an investment adviser must file a Form PF if the investment adviser is advising a private fund or fund with assets of $150 million or more.  Finally, Rule 503 of Regulation D of the Securities Act of 1933 provides that issuers of private funds must file a Form D, and investment advisers usually file the Form D for their private fund clients.  OCIE determined that the most frequent violations of these rules were inaccurate disclosures on Form ADV Part 1 or Part 2A, late modifications to Form ADVs, faulty and late Form PF filings, and faulty and late Form D filings.

Parker MacIntyre attorneys Steve Parker and Bryan Gort attended the 2015 annual conference of the North American Securities Administrators Association (NASAA) held last week in San Juan, Puerto Rico. As usual, the conference provided valuable guidance and updated information on areas of importance to state-registered investment advisers, as well as federal notice filed broker-dealers and SEC registered investment advisers.

Of interest to state-registered investment advisers are proposed amendments to Part 1B of Form ADV that would attempt to capture an RIA’s use of social media and information on the use of third-party compliance professionals.

NASAA also presented the findings of its 2015 coordinated investment adviser examination review, compiled from the results of over 1100 investment adviser examinations. Once again, books and records deficiencies was the leading category, with 78% of all examined entities having deficiencies in that area. Within that category the failure to maintain adequate client suitability data was the leading deficiency, accounting for 10% of the deficiencies noted within the books and record category.
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The Securities and Exchange Commission (SEC) recently filed a cease-and-desist order against an Illinois man, Anthony Fields, for scamming investors with a fictitious securities offering. Fields attempted to sell more than $500 billion in securities using various social media websites, including LinkedIn.

Fields claimed to be a representative of a “leading institutional broker-dealer” through his firms: Anthony Fields & Associates and Platinum Securities Brokers. He was not registered as a broker/dealer with the SEC nor was he licensed as an associate with a registered broker/dealer.

The SEC has claimed that Fields violated numerous securities regulations. Allegedly, he promoted fictitious bank guarantees by setting up an unfunded investment adviser and an unfunded broker-dealer. He registered both of these with the SEC; however, he did so by filing false applications in March 2010. He also failed to maintain adequate books and records or carry out proper compliance procedures. Finally, he overstated his assets under management by claiming he had $400 million when, in actuality, he had none.
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